There are several regulations that have been put forth to help companies take ESG factors into account. For instance, the Corporate Sustainability Reporting Directive (CSRD) is a European Union legislation that requires companies to report on the environmental and sustainable impact of their business activities, as well as their ESG initiatives. The Sustainable Finance Disclosure Regulation (SFDR) aims to do the same by standardizing the reporting of ESG metrics.
Various frameworks have also been created to aid companies in their ESG disclosure. In Europe, the Carbon Disclosure Project (CDP) enables companies to provide environmental information to their stakeholders and consists of risks and opportunity management, environmental targets, as well as strategy and scenario analysis. In that same vein, the Global Reporting Initiative (GRI) provides a global framework that standardizes approaches to materiality, management reporting and disclosure for a full range of ESG issues.
While these regulations and frameworks are designed to steer organizations and investors toward more sustainable business practices, they’re not a fool-proof deterrent against greenwashing or green fraud. Nor are they a buffer to a global disruption.
The COVID-19 pandemic quickly exposed the fragility of companies’ supply chains, health and financial services, as well as the climate itself. In the face of uncertainty, scholars grew concerned that companies would deprioritize their ESG initiatives to stay afloat. And while this was the case in some instances, an interesting discovery was made: companies that had strong ESG performance were better equipped to weather the pandemic as they had already accounted for the possibility of disruption.1
It’s a powerful reminder that ESG is more than just metrics, regulations and frameworks. At its core, ESG is an actionable way to measure progress and take steps towards a more sustainable future.